The Chinese president, Hu Jintao, delivers his speech to the 17th Communist party congress in Beijing. Photograph: Michael Reynolds/EPA

President Hu Jintao admitted yesterday that China's Communist party had failed to live up to the expectations of the people and promised a more sustainable and accountable policy of development.

In a speech that will set China's direction for the next five years, Mr Hu spoke of the need to address the problems of environmental degradation, political corruption and income inequality between the rich cities on the eastern seaboard and villages in the poor western interior.

Mr Hu was speaking at the opening of the 17th Communist party congress - the most important political event in China since the last congress in 2002 - at a time when the leader's words have never carried more weight in the outside world.

Boasting of an average growth rate of more than 10% a year since taking power, Mr Hu vowed to continue the reforms that had pushed China past Britain to become the fourth biggest economy. "To stop or reverse reform and opening up would only lead to a blind alley," he warned.

In the political sphere, he held out the prospect of only limited changes, none of which would challenge the one-party system. An expansion of "inner party democracy" will give 73 million party members more opportunities to vote on policy and leadership, introduce a tenure system for delegates to congress and make the decision making process more open to scrutiny. For most of the 1.3 billion population, there was no clear timetable for an expansion of accountability beyond choosing village chiefs, the lowest level of government. "Citizens' participation in political affairs will expand in an orderly way," he said. "Power must be exercised in the sunshine to ensure that it is exercised correctly."

During his time in office, Mr Hu said the number of rural poor had fallen from 250 million to 20 million, the military had been modernised and the first Chinese astronauts had ventured into space. But, after record levels of protests in the countryside, he admitted that the party had struggled to keep pace with the rapid changes in society. "While recognising our achievements, we must be well aware that they still fall short of the expectations of the people," he said. "The governance capability of the party falls somewhat short of the need to deal with the new situation and tasks."

Among the problems he identified were weak grass-roots organisations, excessive bureaucracy, and waste and corruption by a "small number of party cadres". Last year, 8,310 members were punished for accepting bribes, but that figure accounts only for those who were caught and corruption is endemic.

Mr Hu used the 135-minute speech to amplify his theory of a "scientific outlook on development", which will be written into the party charter. It represents a change of focus from quantity to quality in national governance, and from revolution to plutocracy in party ideology. Instead of merely aiming for high growth, it emphasises sustainability and social harmony. "Our economic growth is realised at an excessively high cost of resources and the environment," Mr Hu noted.

He made his speech in front of a giant hammer and sickle symbol. But decades after the semi-religious reverence of Mao Zedong, the former hydro-engineer relies less on ideology and charisma and more on asserting his qualities as a pragmatic manager. Mao's theory of class struggle, he said, was an erroneous theory.

Mr Hu held out an olive branch to Taiwan. "We would like to make a solemn appeal: On the basis of the one-China principle, let us discuss a formal end to the state of hostility between the two sides, reach a peace agreement," he said. "We are willing to make every effort with the utmost sincerity to achieve peaceful reunification of the two sides and will never allow anyone to separate Taiwan from the motherland in any name or by any means." Taiwan's government rejected the overture as "devoid of significance".

At the end of the congress, the party will unveil a new line-up of the standing committee of the politburo, China's most powerful political body. Mr Hu will promote several supporters, but given the influence of his predecessor Jiang Zemin and the need to balance factional interests, he is also expected to make compromises that would have been undreamed of by past leaders.